Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 per cent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was
A)£2,500.
B)£37,500.
C)£12,500.
D)£7,500.

Question

Quizplus · Accepted Answer

EVA (economic value added) is calculated as after-tax income minus the cost of capital multiplied by the invested capital.

EVA = (After-tax Income) - (Cost of Capital x Invested Capital)

Cost of capital = 15% 
Invested capital = £250,000 
After-tax income = £50,000

EVA = £50,000 - (0.15 x £250,000) = £12,500

Therefore, the answer is C) £12,500.

Dizzy Company's Asian Division Employed Capital of £250,000 Last Year